The Summer internship PROJECT Report On

Working capital analysis of Shri bhuvaneshwari aushadhashram

Submitted By
Jevin k shobhana Enrollment No: 107880592020 Academic Year: 2011- 2012


C.c.gardi, institute of MANAGEMENT. Gujarat Technological University, Ahmedabad.
In partial fulfillment of MBA

Shri Bhuvaneshwari Aushadhashram

Certificate from College


Shri Bhuvaneshwari Aushadhashram

Certificate from Company


Shri Bhuvaneshwari Aushadhashram


Many years ago people didn’t know the meaning of management. But now a day’s people have interest in management field. Management plays an important role in any place. If management is not, there is no possibility of facility. Learning theories in books is the one way of learning the fundamental concepts. But so far as management is concerned, practical side is having high importance. The industrial visit of the organization helps to see the application of fundamental concepts in the real world. It gives the opportunity to students to understand practical aspects of business management in a better way. After visiting it personality, I can say the “SHRI BHUVANESHWARI

AUSHADHASHRAM’’ has a bright future so. I would say that visit this industry & also obtain some practical information about industrial aspect for running a business organization.


Shri Bhuvaneshwari Aushadhashram


It has been an honor and a great opportunity for me to associate myself with “SHRI BHUVANESHWARI AUSHADHASHRAM’’for my practical training programmed. I feel great pleasure in submitting this report as a part of my practical studies. I am thankful to all the persons who helped me to prepare this Industrial Training Report. It is my great to present this report before you. I would specially like to think to Ravi Darshanbhai who is the chairman of “SHRI BHUVANESHWARI AUSHADHASHRAM’’ Gating me the permission to visit this unit. I am also very much thankful to Dr. N. D. Sutariya who is the Production Manager of “SHRI BHUVAESHWARI AUSHADHASHRAM’’ His guidance & outstanding knowledge in his helped me to have comprehensive & complete picture of each department. A project of this nature calls for intellectual nourishment and professional help from many people. I therefore, deeply express my gratitude to all the professors of my college and special Mr.AMIT RAJDEV who guided me and even helped me in completing my project.


Rajkot.Shri Bhuvaneshwari Aushadhashram DECLARATION This project report entitled “Study of Working Capital Analysis of Shri Bhuvaneshwari Aushadhashram” has been submitted to Gujarat Technological University.Shobhana (MBA Sem-3rd) Student signature V . Ahmadabad in partial fulfillment for degree of Master of Business Administration.gardi Institute of Management. Place: RAJKOT Date: Jevin K . C.c. Amit A Rajdev (Faculty Member.) This work has not been previously submitted to any other university or any institution form examination or any other purpose. I am undersigned hereby declare that this report has been completed by me under the guidance of Prof.

No.Shri Bhuvaneshwari Aushadhashram List of Table Particular Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11 Table 12 Current Assets Current Liability Net working Capital Current Assets Current Liability Current Ratio Absolute Liquid Assets Current Liability Absolute Liquid Ratio Net Profit Net Working Capital Return on Working Capital Pg. 29 30 31 34 37 37 39 39 42 43 44 46 List of Figure Particular Fig. 7 VI .1 Organization Chart Pg.No.

In accordance with this aim. magazines. Combination of practical knowledge with theoretical knowledge makes student perfect in his work. The researcher compares working capital with different years while ratio analysis and presentation. Literature review. scope of the study. suggestion. this chapter is where the researcher uses the theoretical knowledge of working capital management for study of organizational practices. the researcher will consider the introduction of the study which will in turn considers the following topics: The background of the study. Research methodology adopted for study project profile. The findings. In this research work. Decisions relating to working capital and short term financing are referred to as working capital management. project is very important with the theoretical knowledge. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing shortterm debt and upcoming operational expenses. to consider statistically significant relationships between firm profitability and the components of cash conversion cycle at length.Shri Bhuvaneshwari Aushadhashram EXECUTIVE SUMMARY Today in course like MBA. VII . this chapter is where the researcher extracts materials from various books. a sample consisting of the company working capital analysis has been included. and conclusion are in last part of the project. The importance of project work has greater role in business world. news papers and internet resources. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. This research work analyzes the effect of working capital management on firm profitability.

1 Definition 1.2 Company profile 2.5 Constituents of current assets 3.3 Concept 3.2 Scope of the project 2 Company Overview 2. 1 1 2 3 7 8 11 12 15 15 15 17 19 20 21 22 23 26 29 47 48 49 VIII .2 Meaning 3. Results and Interpretation Conclusion Suggestion and Findings Bibliography Pg.6 Constituents of current liability 3.1 Introduction 3. 1 Particular Introduction 1.1 Organization Chart 2.No.Shri Bhuvaneshwari Aushadhashram TABLE OF CONTENT Sr.4 Importance of Working capital 3.7 Management of Working capital 4 5 6 7 8 9 Objective Research Methodology Data Analysis .No.3 Product Name 3 Literature Review Theoretical Background 3.

in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its shortterm debt obligations and operating expense. if done properly.1 DEFINITION: Working Capital Management An accounting strategy in which a company seeks to maximize its cash flows so as to pay for its current liabilities and operating expenses. Examples of working capital management include active monitoring of accounts receivable and maintaining little short-term debt.Shri Bhuvaneshwari Aushadhashram CHAPTER . can help a company improve its earnings and maintain a healthy financial state A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital. current assets and current liabilities.1 INTRODUCTION 1. Working capital management. 1 .

While inadequate working capital management has the potential to disrupt production sales operations of otherwise well-run and managed firms. dues and payments get delayed and clamor for clearance and outstanding obligations and commitment gathers momentum. In the event of working capital management being ill-managed. Working capital management is concerned with the problems that arise in attempting to manage current assets. excessive working capital management is equally unwarranted in the view of its adverse impact on profitability. jeopardizing the viability of the firm. effective management of working capital is imperative. raw materials and supplies are interrupted.2 SCOPE OF THE PROJECT Working capital management is referred to as the life and blood of the business firm. current liabilities and the interrelationships that exit between them. All these may entail virtual stoppage of operations.Shri Bhuvaneshwari Aushadhashram 1. Working capital management is the single best method of determining the position of the company or how well that company may be doing. the flow of money gets choked. 2 . Hence.

“SHRI BHUVANISHWARI AUSHADHASHRAM’’ was established in the same primordial and glorified premises with aim of restoration of ayurveda to its original glory & encourages people to turn to nature’s way of healing.Shri Bhuvaneshwari Aushadhashram COMPANY OVERVIEW “SHRI BHUVANESHWARI AUSHADHASHRAM”S history was unique. Previously the organization was manufacturing their types of Ayurvedic medicine but today it is produce 350 types of medicine. The vision & compassion of Rajviadya Shri Jivram Kalidas Sastri gave the birth to the foundation of rasashala Aushadhashram Gondal to serve the deprived message in more accessible way. running the business of with building & gardens allocated by them progressive & prosperous state of Gondal in Gujarat.ft. At present the proprietor can successfully. He firmly believed that ayurveda was the right approach to serve to the mankind in alleviating their suffering. 3 . which shows the development of the unit bright future in the year to become. In 1905 Rasashla Aushadhasharam was established 15000 sq.

Acharyashri. etc. innumerable foreign institutions have conferred honorary doctorates and other similar degrees and titles. Poetry. He carried out various researches in Ayurveda. He devoted his life to Ayurveda and religion. and Religion. 4 . He developed the activities of Ayurveda. He has written about 200 books on various subjects like Ayurveda.A life – Sketch He was the former Royal Physician of Gondal State. 1915 Ghandhiji visited at Gondal. His researches in all these fields have earned him a worldwide repute. He was an institution by himself. On 27th Jan. He was elected as the President of 31st Session of the All Indian Ayurvedic Congress in 1942 in Lahore. A critical edition of "Bhagvad Geeta" containing 745 verses and "Yajnaphalam". Purana. He rendered various human welfare and religious activities. Drama. Astrology Karmakanda. well-known as (Rajvaidya Jivram Kalidas Shastri). History. On this occasion he conferred upon him the title of “MAHATMA” for the first time. He was the person who founded the Ayurvedic Pharmacy in 1910 A. Philosophy. Keeping in view the unique services of Rev.D.Shri Bhuvaneshwari Aushadhashram Brahmaleen Rev. Sanskrit and Astrology throughout his life.a drama based on the Ramayana are his unique contributions to Sanskrit literature. Grammar. Acharyashree .

Sanskrit. 2-9-’78) at1-15 p. Later in 1946 A. 2034. Thence forward every year the day of Shravana Vadi Amavasya is being celebrated as the ‘Nirvan Din’ (-Death Anniversary) of Rev.D. He was a well-known figure in the name of Bhoomandalacharya Ananstashri Vibhushita Shri Bhuvaneshwari Pithadisha Jagadguru Acharyashri Charantirthji Maharaj.Shri Bhuvaneshwari Aushadhashram During his childhood he met his Guru from Himalayas in Girnar who imparted knowledge of various subjects like Veda. Shravana Vadi Amavasya (i. he laid the Stone of Temple of Shri Bhuvaneshwari. Acharyashri Charantirthji Maharaj. Ayurveda and gave him Diksha of Goddess Bhuvaneshwari. he continued his researches. Even during his old age. He left his mortal body on V. literature. 5 .e. Due to old age in 1970 he handed over the organization of Shri Bhuvaneshwari Pith to his son Acharyashri Ghanshyamji Maharaj.S. which is a well known religious institute round the globe.m.

Shri Bhuvaneshwari Aushadhashram ORGANIZATION CHART 6 .

Shri Bhuvaneshwari Aushadhashram Fig.1 “SHRI BHUVANISHWARI AUSHADHASHARAM’’ Proprietors General Manager Production Manager Raw Material Section Head Packaging Manager Dispatch Label Bottle Section Marketing Manager A/C Billing Sales Medical Represen Tative 7 .


EMPLOYEES 16. SHIFTS 17.Shri Bhuvaneshwari Aushadhashram 13. 220599 80 8 TO 12 & 2 TO 6 1st APRIL TO 31st MARCH 15000 SQEARE FEET 14. 222446 0091-2825-221195. & FAX NO 15. TELEPHONE NO. AREA 9 . ACCOUNTING YEAR 18. WEEKLY OFF DAY SUNDAY 0091-2825-222445.

Shri Bhuvaneshwari Aushadhashram 10 .


those have exercised profound influence on the understanding of working capital management good number of these studies which pioneered work in this area have been conducted abroad. to study the dynamics of inventory investment which often represented largest component of total working capital.Shri Bhuvaneshwari Aushadhashram CHAPTER – 2 LITERATURE REVIEW The purpose of this chapter is to present a review of literature relating to the working capital management. Sagan in his paper (1955). However. Special studies have been undertaken. He discussed mainly the role and functions of money manager inefficient working capital management. it has not attracted much attention of scholars. emphasized the need for management of working capital accounts and warned that it could vitally affect the health of the company. Sagan pointed out the money manager’s operations were primarily in the area of cash flows generated in the course of business transactions. He realized the need to build up a theory of working capital management. Indian scholars have also conducted research studies exploring various aspects of working capital. Whatever studies have conducted. following which. perhaps the first theoretical paper on the theory of working capital management. Although working capital is an important ingredient in the smooth working of business entities. Thus. money manager must be familiar with what is being done with the control of inventories. Sagan concentrated mainly on cash component of working capital. mostly economists. He suggested that money manager should take his 12 . receivables and payables because all these accounts affect cash position. Sagan indicated that the task of money manager was to provide funds as and when needed and to invest temporarily surplus funds as profitably as possible in view of his particular requirements of safety and liquidity of funds by examining the risk and return of various investment opportunities.

Walker in his study (1964) made a pioneering effort to develop a theory of working capital management by empirically testing. this study is descriptive without any empirical support. long-term debt is costlier. the lower be the risk. On the basis of this. This is important because efficient money manager can avoid borrowing from outside even when his net working capital position is low. Moreover. Proposition II─ The type of capital (debt or equity) used to finance working capital directly affects the amount of risk that a firm assumes as well as the opportunities for gain or loss. Realizing the dearth of pertinent literature on working capital management. For. On the basis of this observation. which would depend on management attitude towards risk and return. Walker again suggested that not only the debt-equity ratio. Walker further stated that if a firm wished to reduce its risk to the minimum. The study pointed out that there was a need to improve the collection of funds but it remained silent about the method of doing it. the amount of risk the firm assumes is also varied and the opportunities for gain or loss are increased. but also the maturity period of debt would affect the risk-return trade-off. the problem is not whether to use debt capital but how much debt capital to use.Shri Bhuvaneshwari Aushadhashram decisions on the basis of cash budget and total current assets position rather than on the basis of traditional working capital ratios. he developed his third proposition. management would have enough opportunity to acquire funds from operations to meet the debt obligations. In fact. The longer the period of debt. three propositions based on risk-return trade-off of working capital management. he developed his second proposition. Walker studied the effect of the change in the level of working capital on the rate of return in nine industries for the year 1961 and found the relationship between the level of working capital and the rate of return to be negative. But at the same time. though partially. 13 . Walker formulated three following propositions: Proposition I─ If the amount of working capital is to fix capital. the firm reduced its opportunities for higher gains on equity capital as it would not be taking advantage of leverage. On the basis of this. it should employ only equity capital for financing of working capital. however by doing so.

Moreover. He emphasized that different production techniques require different amount of working capital by affecting goods-in-process because different techniques have differences in the length of production period. Thus. firms should be conscious of the effect of law current assets on its ability to pay-off current liabilities. Enterprises. following this approach. hypothesized that choice of production technique could reduce the working capital needs. Welter. savings through reduction of working capital should be tried till these saving are greater or equal to the cost of these savings. The study requires specifying the delay centers and working capital tied up in each delay centre with the help of information regarding average delay and added value. He. therefore. optimum lot size and marketing lag of output disposals. Appavadhanulu (1971) recognizing the lack of attention being given to investment in working capital. the greater the risk and vice-versa. can adversely affect its short-term liquidity position in an attempt to achieve saving through reduction of working capital. this approach concentrated only on total amount of current assets ignoring the interactions between current assets and current liabilities. in his study (1970). stated that working capital originated because of the global delay between the moment expenditure for purchase of raw material was made and the moment when payments were received for the sale of finished product. Therefore. However. the rate of output flow per unit of time and time pattern of value addition. Thus. by affecting lead-time. saving through reduction of working capital could be possible by reducing the length of global delay by rescuing and/or favorable redistribution of this global delay among the different delay centers. analyzed working capital management by examining the impact of method of production on investment in working capital.Shri Bhuvaneshwari Aushadhashram Proposition III─ The greater the disparity between the maturities of a firm’s debt instruments and its flow of internally generated funds. this study is concerned only with return aspect of working capital management ignoring risk. better information and improved staff involve cost. Delay centres are located throughout the production and marketing functions. He recognized that by more rapid and precise information through computers and improved professional ability of management. He estimated the ratio of work-in-progress and working capital to gross output and 14 . Different techniques would also affect the stock of raw materials and finished goods.

THEORETICAL BACKGROUND 3. An Executive function of Finance for taking Liquidity decisions. by taking more appropriate ratios representing production technique correctly. Lack of efficient and effective utilization of working capital leads to earn low rate of return on capital employees or even compels to sustain losses. However. Working Capital to a company is like the blood of human body. he pointed out that the idea could be tested in some other industries like machine tools. has recorded their growth. ship building etc. on the basis of detailed discussions with the producers and not on the basis of balance sheets which might include speculative figures. Business cannot run without adequate working capital (WC). Working Capital management if carried out effectively.1 INTRODUCTION Working Capital management is a significant fact of financial management due to the fact that it plays a pivotal role in keeping the wheels of a business enterprise running. will assure the health of the organization. Requirements of WC may differ from organization to organization. Signifies money required for day-to-day operations of an organization. His study could not show significant relationship between choice of technique and working capital. efficiently and consistently. 15 .Shri Bhuvaneshwari Aushadhashram net output in textile weaving done during 1960. Shortage of funds for working capital has caused many businesses to fail and in many cases. It is the most vital ingredient of a business. Working Capital management is concern with short term financial decisions have been relatively neglected in the literature of finance.

Other factors remaining the same. and inventories that the firm expects to convert into cash within the year. Working capital alternatively referred to as current or circulating capital.liquidity tangle. Before we get to the issues of profibility. This differential denotes that part of current assets which is financed by long term sources of financing.2 Net Working Capital (NWC) Net working capital refers to the difference between current assets and current liability. the better is the health of the firm from the liquidity perspective. let us understand the concepts of gross and working capital. as it talks about the total investment made by a firm in current assets. It is these current assets that determine the liquidity position of the business. marketable securities. accounts receivables. 3. It is referred to as the managers’ concept of working capital. 3. from the finance manager’ angel it implies the total investment made in current assets. It is referred to as the account ant’s definition of working capital. from the production manager’ view it refers to the total funds that a firm needs to carry out its day-to-day operation. as it denotes the liquidity position of the firm. The higher the investment in current assets. the higher the GWC of a firm. An increasing NWC indicates an 16 . Current assets comprise all assets such as cash.Shri Bhuvaneshwari Aushadhashram 3. The reason is that it is subject to multiple connotations. perhaps.1 Gross Working Capital (GWC) Gross working capital is the broader concept of working capital. one of the most misunderstood issues in the literature of finance.2.2. is the investment made by firms in their current assets.2 MEANING The concept of working capital is. From the accounts perspective it refers to the current assets minus current liabilities differential. the better its liquidity position.

Finished goods are produced further held as inventories and when inventories are sold account receivables are created. The availability and cost of short-term funds and subject to market vagaries. Cash is used to buy raw materials. Working Capital management is the administration of the firm’s current assets and the financing needed to support the current assets. The value represented by these assets circulates among several items. Inventory. as it reflects an increasing usage of long-term financing sources to partly finance shirt-term assets.Shri Bhuvaneshwari Aushadhashram improving liquidity position of the firm. short-term borrowing. Then the collection of account receivables brings cash into the firm and the cycle starts again. advances received against sales. Temporary Investments. outstanding expenses. to pay wages and to meet other manufacturing expenses. and 17 . Prepaid expenses. This includes creditors for goods purchased. which will be converted into cash within the current accounting period or within the next year as a result of the ordinary operation of the business. They are cash or nearly converted cash resources. to the extent a firm uses long-term funds to finance investments in current assets. it precludes the possibility of non-availability of short-term funds for financing these assets. thus. Receivables. taxes and dividends payable. This improves the firm’s liquidity position. These include Cash and Bank Balances. Short Term advances. Current assets are those assets. Cash Inventories Receivables Circulation of Current Assets Current Liabilities are the debts of the firm that have to be paid during the current accounting period or within a year.

Larger the ratio the more solvent the firm. However from management’s point of view a high ratio may indicate poor planning since excessive amounts are tied up in on productive current assets. the book value of current assets could shrink considerably and the firms creditors would still be assured of payments.e. 18 .3 CONCEPT 3.1 Gross Working Capital It refers to the firm’s investments in current assets.2 Net Working Capital It refers to the excess of the current assets over current liabilities. fluctuating capital and revolving capital.Shri Bhuvaneshwari Aushadhashram other liabilities maturing within a year. which is of major concern to investors and bankers. in the event of bankruptcy.3. i. Current credit soundness is indicated by positive NWC position. Working Capital is also known as circulation capital. It is measured by the current ratio obtained by dividing the rupee value of current assets by rupee value of current liabilities. 3. 3. Net Working can be positive or negative.3. falling prices of inflated values. A negative working capital will arise in case when current liabilities are more than current assets and positive working capital will occur when current assets are more than current liabilities. which tend to produce a lower income. There is two characteristics of current assets like: Short life span and swift transformation into other assets forms.

In its endeavor to do so a firm should earn a sufficient return from its operations. Indeed. The firm is required to invest enough amounts of funds in current assets. How much working capital needs to be financed by different sources of financing must be periodically reviewed. It is difficult to find any organization. This requires that the decision to bring the levels of current assets to the desired levels of current assets should be made at the earliest opportunity and as frequently as required.3 Need for working capital The need for Working Capital to run day-to-day business activities cannot be overemphasized.Shri Bhuvaneshwari Aushadhashram 3. For generating sales current assets are needed because sales do not convert into cash immediately. Earning as steady amount of profit requires successful sales activity and co-ordination among all the department of the firm. 3.3. which does not required any amount of Working Capital.4 IMPORTANCE OF WORKING CAPITAL The level of current assets changes constantly and regularly depending upon the level of actual and forecasted sales. 19 . firms differ in their requirements of the working capital we know that a firm should enhance the wealth of its shareholders. Inefficient working capital management may result in loss of sales and consequently decline in the profits of the firm. The changing levels of current assets may also require review of the financing pattern.

Marketable securities. 3. Prepaid expenses 8. Sundry debtors 4. Current liabilities are those liabilities. Accrued incomes. 5. Inventories of stock as: a. resulting in the investment of larger chunk of funds in the current assets. 7. Work in process c. Bills receivables 3. Finished goods 6. Current assets usually represent a substantial portion of the total asses of a firm. Short term loans and advances. which are intended 20 .5 CONSTITUENTS OF CURRENT ASSETS 1. 9. The target sales level can be achieved only if supported by adequate working capital. Net working capital can be positive or negative. Temporary investment of surplus funds. Stores and spares d. There is an obvious and inevitable relationship between the sales growth and the level of current assets. When the current assets exceeds the current liabilities are more than the current assets. Raw material b. Cash in hand and cash at bank 2.Shri Bhuvaneshwari Aushadhashram Inefficient working capital management may also lead to insolvency of the firm. if it is not in a position to meet its liabilities and commitments.

2. Bills payable. 4. It takes into consideration of the fact every increase in the funds of the enterprise would increase its working capital. It enables the enterprise to provide correct amount of working capital at correct time.6 CONSTITUENTS OF CURRENT LIABILITIES 1. Every management is more interested in total current assets with which it has to Operate than the source from where it is made available. This concept is also useful in determining the rate of return on investments in working Capital. The gross concept is sometimes preferred to the concept of working capital for the following reasons: 1. 21 . if it does not amt. 4. Provision for taxation. 7. 6.Shri Bhuvaneshwari Aushadhashram to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assts or the income business. Sundry creditors. 3. 3. Both the concepts have their own merits. to app. 3. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Dividends payable. Short term loans. advances and deposits. Accrued or outstanding expenses. 5. Of profit. 2. Bank overdraft.

It is an indicator of the financial soundness of enterprises. see Discounts and allowances.Shri Bhuvaneshwari Aushadhashram The net working capital concept however is also important for following reasons: 1. see Supply chain management. 22 . or to “convert debtors to cash” through “factoring”. Inventory Management: Identify the level of inventory which allows for uninterrupted production but reduce the investment in raw materials and minimized reordering cost – and hence increase cash flow. it may be necessary to utilize a bank loan. Economic order quantity (EOQ). It suggests the need of financing a part of working capital requirement out of the permanent sources of funds. Debtors Management: Identify the appropriate credit policy.e. 3. It indicates the margin of protection available to the short term creditors. which indicates the firm’s ability to meet to its operating expenses and short-term liabilities. Just in Time (JIT). credit terms which will attract customers. Economic production quantity (EPQ). 4. however.7 MANAGEMENT OF WORKING CAPITAL Guided by the above criteria. Cash Management: Identify the cash balance which allow for the business to meet day to day expenses. Short term financing: Identify the appropriate source of financing. 2. These policies aim at managing the current assets (generally cash and equivalent. management will use a combination of policies and techniques for the management of working capital. but reduces cash holding costs. given the cash conversion cycle. i. the inventory is ideally financed by credit granted by the supplier. 3. such that cash flow and returns are acceptable. such that any impact on cash flow and the cash conversion cycle will be offset by increased revenue and hence return on Capital. inventories and debtors) and the short term financing. It is qualitative concept.

each of which should be considered carefully for determining the proper amount of working capital. inventory to current assent. 2. financial statement analysis of working capital is also very useful for short-term management of funds. current ratio. DETERMINANTS OF WORKING CAPITAL Working capital requirements of a concern depends on a number of factors. To study liquidity position of the company by taking four measures at time namely. The following are the main objective of my study: 1. 3. When I am analyzed and interpret. To make item wise analysis of the elements or component of working capital to identify the item responsible for changes in working capital.Shri Bhuvaneshwari Aushadhashram OBJECTIVES Working capital management is very important in modern business. It may be however be added that these factors affect differently to the different units and these keeps varying from time to time. debtors to current assent. In general. the determinants of working capital which re common to all organization’s can be summarized as under: 23 . To assess the significance of working capital by selecting few important parameters such as. cash and bank to current assent and loan & advances and other assets to currents assets. absolute liquid ratio and return on working capital ratio.

Working capital requirement for manufacturing concerns depends on various factors like the products. Nature of business: Need for working capital is highly depends on what type of business. the higher will be the working capital requirement of the organization. Manufacturing concerns stands in between these two extends. Size of business: Size of business is another factor to determines the need for working capital D. which needs to invest a lot in stocks. there are trading firms. the firm in. ills receivables. Length of operating cycle: Operating cycle of the firm also influence the working capital. follows liberal credit policy needs to keep more working capital with them. need much less inventories and cash. marketing policies. electricity. Seasonal industries. Efficiency of debt collecting machinery is also relevant in this matter. A company doesn’t enjoy a liberal credit from its suppliers will have to keep more working capital. Credit availability form suppliers also effects the company’s working capital requirements. public utilities like railways..Shri Bhuvaneshwari Aushadhashram A. Longer the orating cycle. technologies. Some industries which produces round the year but sale mainly done in some special seasons are also need to keep more working capital. B. liquid cash etc. etc. 24 . which produces only in specific season requires more working capital. Production policies: Production policies of the organization effects working capital requirements very highly. E. C. Credit policy: Companies.

If developed helps to reduce the working capital requirement. H. Working capital requirements of such industries will be higher during certain season of such industries period. Fluctuations of supply and seasonal variations: Some companies need to keep large amount of working capital due to their irregular sales and intermittent supply. A company pursuing an aggressive amount assets policy operates with a relatively lower level of working capital. Policies. Business fluctuation: Cyclical changes in the economy also influence the level of working capital. This increase the need of working capital. Other factors: Effective co ordination between production and distribution can reduce the need for working capital. Transportation and communication means. Some companies manufacture and sell goods only during certain seasons. the tendency of management is to pile up inventories of raw materials and finished goods to avail the advantage of rising prove. Current asset policies: The quantum of working capital of a company is significantly determined by its current assets. A company with conservative assets policy may operate with relatively high level of working capital than its sales volume. During boom period. 25 . G.Shri Bhuvaneshwari Aushadhashram F. Similarly companies using bulky materials also maintain large reserves’ of raw material inventories. I.

Shri Bhuvaneshwari Aushadhashram RESEARCH METHODOLOGY 26 .

It is not enough to follow the research procedures without an intimate understanding that research methodology directs the whole endeavor where critical decisions are made and where organizing. and directing the whole project take place. and arranges them in logical relationships. sets up a means of refining the raw data. planning. I have been able to identify many important variables associated with working capital management. In quantitative analysis I applied methods.Shri Bhuvaneshwari Aushadhashram CHAPTER – 3 The core concept underlying all research is its methodology. contrives an approach so that the meanings that lie below the surface of those data become manifest. 27 . The major purpose of descriptive research is description of state of affairs of the institution as it exists at present. The financial statements of SHRI BHUVANESHWARI AUSHADHASHRAM have been described in this study. and finally issues a conclusion or series of conclusions that lead to an expansion of knowledge. I have identified the crucial factors associated with working capital management. The descriptive form of research method is adopted for study. The purpose of this research is to contribute towards a very important aspect of financial management known as working capital management with reference to SHRI BHUVANESHWARI AUSHADHASHRAM for a period of five year from 2005 to 2010. dictates the acquisition of the data. As multiple variables are influencing problem. The methodology controls the study.

Secondary data means which data those were taken by the annual report of the company and also from other project reports those made by the former trainee and from the company’s financial statement and from the company’s website etc. For the data collection I have used Secondary Data Method. There are two types of collecting data: 1) PRIMARY DATA 2) SECONDARY DATA Primary data means those data which are collected during the training period in the company by the way of interview and discussion with the company officers or employees. In the project report I have taken a subject or topic of financial Working capital management. 28 .Shri Bhuvaneshwari Aushadhashram DATA COLLECTION TOOLS The methodology followed means during the training period in the SHRI BHUVANESHWARI AUSHADHASHRAM which method used for the collection of data from the company.

RESULTS AND INTERPRETATION WORKING CAPITAL ANALYSIS As we know working capital is the life blood and the centre of a business.Shri Bhuvaneshwari Aushadhashram CHAPTER .50 2. Adequate amount of working capital is very much essential for the smooth running of the business. a study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the working capital is employed in a business. So.92 2.40 2.4 DATA ANALYSIS. IN CRORES) 1. This involves the need of working capital analysis. And the most important part is the efficient management of working capital in right time. CURRENT ASSETS (Table 1) YEAR 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009 – 10 CURRENT ASSETS (RS.80 3. The liquidity position of the firm is totally effected by the management of working capital.03 29 .

82 0. CURRENT LIABILITY (Table 2) YEAR 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009 -10 CURRENT LIABILITY (RS. Current liability of the company increase and decrease.91 0.95 Interpretation: In 2009 the current liability of the company decrease.81% increase in current assets of SHRI BHUVANESHWARI AUSHADHASHRAM in 2009-10 compare to 2005-06.96 0. IN CRORES) 1.73 0. But still increase in current assets is more than its current liabilities. 30 .Shri Bhuvaneshwari Aushadhashram Interpretation: This graph shows that there is 57.

IN CRORES) 5.64 6.28 Interpretation: Working capital is required to finance day to day operations of a firm. It should not be too less or not too excess.Shri Bhuvaneshwari Aushadhashram NET WORKING CAPPITAL (Table 3) YEAR 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009 – 10 NET WORKING CAPITAL (RS. There should be an optimum level of working capital. In the SHRI BHUVANESHWARI AUSHADHASHRAM there is increase or decrease in working capital.95 5. The increase and decrease in working capital arises because the SHRI BHUVANESHWARI AUSHADHASHRAM has expanded its business.28 4. 31 .60 4.

Shri Bhuvaneshwari Aushadhashram 32 .

Absolute liquid ratio. CURRENT RATIO:- Current Ratio. 33 . dividend payable etc. The two components of this ratio are: 1. bill payable. It is defined as the relation between current assets and current liabilities. The technique of ratio analysis can be employed for measuring short-term & long term position of a firm. sundry debtors. inventories and work-in-progresses. CURRENT LIABILITES Current assets include cash. Current liabilities include outstanding expenses. Current ratio. bill receivables. 3. 2. also known as working capital ratio is a measure of general liquidity and its most widely used to make the analysis of short-term financial position or liquidity of a firm. CURRENT ASSETS 2. marketable securities.Shri Bhuvaneshwari Aushadhashram RATIO ANALYSIS A ratio is a simple arithmetical expression one number to another. The following ratios can be calculated for these purposes: 1. Return on working capital ratio.

80 3.50 2.10 CURRENT LIABILITY 34 .40 2.Shri Bhuvaneshwari Aushadhashram Formula: CURRENT ASSETS CURRENT RATIO = ----------------------------CURRENT LIABILITY CURRENT ASSETS (Table 4) CURRENT ASSETS (RS. IN CRORES) 1.92 2.03 YEAR 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009 .

91 0.Shri Bhuvaneshwari Aushadhashram (Table 5) CURRENT LIABILITY YEAR 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009 – 10 (RS.92 CURRENT RATIO = -------1.11:1 time 35 .73 = 1.96 0.73 0.IN CRORES) 1.95 CALCULATION CURRENT ASSETS CURRENT RATIO = -----------------------------CURRENT LIABILITY 2005 .06 1.82 0.

80 CURRENT RATIO =-------0.50 CURRENT RATIO = -------0.96 = 2.91 = 2.Shri Bhuvaneshwari Aushadhashram 2006 .09 2.08 2.40 CURRENT RATIO = --------0.05:1 time 2008 .92:1 time 36 .07 2.82 = 3.64:1 time 2007 .

95 = 3. current 37 .03 CURRENT RATIO = --------0.5 2 1.5 3 2.19:1 time (Table 6) CURRENT RATIO 3.Shri Bhuvaneshwari Aushadhashram 2009 .5 0 2005-06 2006-07 2007-08 2008-09 2009-10 CURRENT RATIO Interpretation: As we know that ideal curren ratio of the company 3:1 times.5 1 0.10 3.

Absolute Liquid Assets includes: ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES FORMULA: ABSOLUTE LIQUID ASSETS ABSOLUTE LIQUID RATIO = ---------------------------------------------CURRENT LIABILITIES ABSOLUTE LIQUID ASSETS 38 . debtors and bills receivable are generally more liquid than inventories. yet there may be doubts regarding their realization into cash immediately or in time.Shri Bhuvaneshwari Aushadhashram ABSOLUTE LIQUID RATIO: Although receivables. So absolute liquid ratio should be calculated together with current ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets.

IN CRORES) 1.Shri Bhuvaneshwari Aushadhashram (Table 7) ABSOLUTE LIQUID ASSETS (RS.10 CALCULATION 39 .91 0.24 YEAR 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009 – 10 CURRENT LIABILITY (Table 8) CURRENT LIABILITY (RS.35 0.95 YEAR 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009 .36 0.73 0. IN CRORES) 0.25 0.82 0.22 0.96 0.

40:1 times 2007 .06 0.07 0.36 ABSOLUTE LIQUID RATIO = ---------0.25 ABSOLUTE LIQUID RATIO = ---------1.08 40 .15:1 times 2006 .91 = 0.73 = 0.Shri Bhuvaneshwari Aushadhashram ABSOLUTE LIQUID ASSETS ABSOLUTE LIQUID RATIO = --------------------------------------CURRENT LIABILITIES 2005 .

25:1 times 41 .Shri Bhuvaneshwari Aushadhashram 0.82 = 0.23:1 times 2009 – 10 0.09 0.24 ABSOLUTE LIQUID RATIO = --------0.95 = 0.96 = 0.22 ABSOLUTE LIQUID RATIO = --------0.35 ABSOLUTE LIQUID RATIO = ---------0.43:1 times 2008 .

2007-08 in 0.35 0.Shri Bhuvaneshwari Aushadhashram (Table 9) ABSOLUTE LIQUID RATIO 0.25 times.23 times and 2009-10 in 0.40 times.15 0.2 0. 2006-07 in 2005-06 times 0.4 0.43 times 2008-09 in 0.3 0.45 0.25 0.05 0 2005-06 2006-07 2007-08 2007 2008-09 2009-10 ABSOLUTE LIQUID RATIO Interpretation: Absolute liquid ratio for the company in year 2005 06 in 0. Company for 08 times. 10 Absolute liquid ratio in increase and decrease. ncrease RETURN ON WORKING CAPITAL RATIO: 42 .1 0.15 times.

FORMULA PROFIT BEFORE INT.X 100 WORKING CAPITAL NET PROFIT (Table 10) NET PROFIT (RS. This ratio considers profit before int.65 0. IN CRORES) 0.62 0. & tax and net working capital of the firm.70 0.66 YEAR 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009 – 10 43 . & TAX RETURN ON WORKING CAPITAL = ------------------------------------------.Shri Bhuvaneshwari Aushadhashram Return on working capital ratio shows the relationship between profitability and working capital of the SHRI BHUVANESHWARI AUSHADHASHRAM.60 0.

62 RETURN ON WORKING CAPITAL = --------.64 6.X 100 5.28 4. & TAX RETURN ON WORKING CAPITAL = -------------------------------------WORKING CAPITAL X 100 2005 .Shri Bhuvaneshwari Aushadhashram NET WORKING CAPITAL (Table 11) NET WORKING CAPITAL (RS.74% 44 .95 5.28 = 11.60 4. IN CRORES) 5.06 0.28 YEAR 2005 – 06 2006 – 07 2007 – 08 2008 – 09 2009 – 10 CALCULATION PROFIT BEFORE INT.

95 = 14.14% 2008 – 09 0.70 RETURN ON WORKING CAPITAL = ---------.60 RETURN ON WORKING CAPITAL = --------.X 100 4.65 RETURN ON WORKING CAPITAL = --------.07 0.X 100 4.Shri Bhuvaneshwari Aushadhashram 2006 .X 100 5.52% 45 .04% 2007 .64 = 11.60 = 13.08 0.

51% (Table 12) RETURN ON WORKING CAPITAL 16.51%.00% 6. 46 .14%.X 100 6.74%.00% 2005-06 2006-07 2007 2007-08 2008-09 2009-10 RETURN ON WORKING CAPITAL Interpretation: Return on working capital for the year 2005-06 in 11.00% 2. 2008-09 in 11.00% 8.04%.00% 12.00% 10.28 = 10.52% and 2009 09 2009-10 in 10.00% 0.66 RETURN ON WORKING CAPITAL = -------.00% 14. 2006-07 in 13.Company for return on working Company capital in small percentage for increase and decrease.10 0.00% 4. 06 2006 2007-08 in 14.Shri Bhuvaneshwari Aushadhashram 2009 .

From this research. To maintain their day to day transaction. predetermined norms are applied wherever they are applicable Mainly Working Capital management is the function of finance department But many other departments like production. I came to know about a lot of things regarding management of working capital. Working capital is very important part for any company. Hence an increase in Working Capital will have a negative effect the business cash flow holding. purchase and marketing are also involved in this procedure indirectly. The producer is very for estimating Working Capital requirement. in purchasing or converting inventory. 47 . efficient management of working capital is required.Shri Bhuvaneshwari Aushadhashram CHAPTER . Thus the effect from all departments of various units helps company to manage its Working Capital in a systematic manner.g. paying creditors etc.5 CONCLUSION This is the last and analytical stage of research work. However a negative change in Working Capital indicates lower fund to pay off short term liabilities. A positive change Working Capital indicates that the business had paid out cash e. Any change in Working Capital will have an effect on business’s cash flow.

Company’s working capital us enough to maintain company’s sales and other operations easily. Due to high goodwill the company is not getting any problem in getting short term finance. 48 . Company is targeting to increase product export in other country transactions and also trying to avoid hedging risk. Following are some suggestions and findings of my research work: Company’s main strength is its employees and company is properly taking care of that by providing safety working conditions. Shri Bhuvaneshwari Aushadhashram is more and more expand in product in Ayurvedic Medicine and companies for its faster growth. I have prepared a project on Working Capital Management of the company. canteen facilities and employees benefit etc. I have taken a summer internship programme for my MBA project at Shri Bhuvaneshwari Aushadhashram.Shri Bhuvaneshwari Aushadhashram SUGGESTIONS AND FINDINGS Shri Bhuvaneshwari Aushadhashram is the fastest growing company in Ayurvedic Medicine. 49 .Shri Bhuvaneshwari Aushadhashram BIBLIOGRAPHY Rajiv Srivastava and Anil Misra. Financial Management I M. bhuaushadha@gmail. Financial Management Company’s Report in 2005 . Pandey.2010 .

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